New CAFE-III Fuel Efficiency Regulations: Implications for Electric Vehicles, Hybrids, and Compact Cars
India’s passenger vehicle industry is preparing for a new fuel-efficiency regime as the government has announced the Corporate Average Fuel Economy (CAFE-III) norms. These regulations will take effect from April 1, 2027, and will remain in place until March 31, 2032. The new framework applies to all new passenger vehicles manufactured or imported for sale in India and establishes fuel consumption and energy consumption standards for M1 category motor vehicles under the Central Motor Vehicle Rules, 1989.
The updated CAFE norms introduce several changes in how manufacturers can meet fuel-efficiency requirements. The framework includes annual fuel-consumption targets, credit trading, super credits for cleaner vehicles, and carbon-neutrality factors for certain fuels. Additionally, it allows credits for specific fuel-saving technologies.
New Fuel-Efficiency Targets
Starting April 1, 2027, each manufacturer’s Annual Average of Actual Fuel Consumption Standard will be calculated in petrol-equivalent litres per 100 kilometres using the Modified Indian Driving Cycle (MIDC). This calculation will consider the weighted average unladen mass of the manufacturer’s new vehicles along with a fixed constant of 1,229 kg. The multipliers used in the calculation will decrease annually over the five-year period.
From the 2027-28 financial year, manufacturers must ensure their annual average actual fuel consumption meets or is below the prescribed standard for that year.
Compliance Divided into Two Blocks
The new framework segments compliance into two blocks. The first block spans three years from FY 2027-28, while the second block begins in FY 2030-31. Manufacturers will maintain a passbook to record credits and debits. If a manufacturer’s actual fuel consumption is better than its target, the difference will be recorded as a credit. Conversely, if actual consumption exceeds the target, the shortfall will be noted as a debit.
Manufacturers Can Pool or Trade Credits
Manufacturers are permitted to pool their credits and trade them with other manufacturers under mutually agreed terms. A manufacturer with a debit balance can offset it by purchasing credits from the Bureau of Energy Efficiency. The prices per gram of COâ‚‚/km will increase each year, starting at Rs 2,500 for FY 2027-28 and rising to Rs 4,500 by FY 2031-32. However, credit exchanges will only be allowed during a designated 30-day trading window from October 1 to October 31 each assessment year.
Cleaner Vehicles Get ‘Super Credits’
The new rules enable manufacturers to apply volume derogation factors to individual models, providing additional credit for cleaner vehicles. Battery electric and range-extended electric vehicles will receive a factor of 3.0, while plug-in hybrids and strong hybrids using flex fuel ethanol will have factors of 2.5 and 1.6, respectively. Flex fuel ethanol vehicles will receive a factor of 1.1. The ministry states that this framework allows manufacturers greater flexibility to adopt cleaner technologies and alternative fuels.
Alternative Fuels Get a Carbon-Neutrality Benefit
The norms introduce a Carbon Neutrality Factor (CNF) for petrol, CNG, and flex fuel ethanol vehicles, which discounts the manufacturer-declared COâ‚‚ emissions for a model. Ethanol-blended petrol vehicles will receive an 8% discount on tailpipe COâ‚‚, while flex fuel ethanol vehicles will benefit from a 22.3% discount. For CNG vehicles, the factor will be 5% or the CBG blending percentage specified by the Ministry of Petroleum and Natural Gas, whichever is higher.
More Fuel-Saving Technologies Can Earn Credits
Manufacturers can claim credits for specified efficiency technologies installed in vehicles. Each eligible technology can earn a credit of 1.0 g COâ‚‚/km, with a maximum limit of 9.0 g COâ‚‚/km. Eligible technologies include start-stop systems, tyre pressure monitoring systems, and regenerative braking systems, among others. The Ministry of Road Transport will develop certification methods for these technologies.
During the first compliance block, energy savings claimed by manufacturers will be based on self-declaration. In the second block, claims must be supported by validated test results.
Fuel Consumption Converted into Petrol Equivalents
The framework establishes specific factors for calculating fuel consumption from measured tailpipe COâ‚‚. These factors are 0.04217 for petrol, 0.03776 for diesel, 0.06150 for LPG, and 0.03647 for CNG. Electric vehicles will be measured in kWh per 100km, with fuel consumption for diesel, LPG, CNG, and electric vehicles converted into petrol equivalents using designated factors.
MIDC and WLTP Performance
From April 1, 2027, manufacturers must declare performance under both the existing MIDC and the Worldwide Harmonised Light Vehicles Test Procedure (WLTP). The conversion factor for CAFE targets from MIDC to WLTP will be notified separately by the Ministry of Power in consultation with the Bureau of Energy Efficiency.
Reporting and Compliance
Manufacturers are required to provide state-wise sales data annually along with their final compliance report to the designated agency. This agency will compile the data and submit it to the Bureau of Energy Efficiency by September 30 of each assessment year. Non-compliance will be assessed at the end of each compliance block after credits and debits have been settled.
Small-Volume Manufacturers Exempted
Manufacturers producing or importing fewer than 1,000 eligible vehicles in a reporting period will be classified as small-volume manufacturers and exempt from specific emission targets. However, they must still report their annual average actual fuel consumption to the Bureau of Energy Efficiency. The Ministry of Road Transport and Highways will enforce provisions related to testing, reporting, and compliance methodologies in consultation with relevant ministries.
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